1. The Search for Market Dominance
Steve Pociask and Joseph P. Fuhr, Jr.
July 24, 2012
1701 Pennsylvania Ave., NW, Suite 300
Washington, DC 20006
www.TheAmericanConsumer.org

2. 2
The Search for Market Dominance
Steve Pociask and Joseph P. Fuhr, Jr. 1
Executive Summary
Google has become one of the most successful and innovative companies of the
Internet Age. Founded less than fourteen years ago, the company is one of the largest in terms
of market capital, exceeding the likes of Exxon, Merck, Comcast, Verizon and Amazon. It
controls a sizable market share for many of its products and services, particularly its search
engine (and related online advertising) services. The company continues to grow at a double-
digit pace and it is highly profitable when compared to its direct rivals and other major firms.
Despite these market successes, policymakers and Federal agencies in the U.S., state
attorneys general and international regulators are taking a closer look at the company, citing a
series of problems involving market conduct – including privacy breaches, complaints of
potential anticompetitive risks and other matters.
This study explores these potential problems in terms of market structure, conduct and
performance, and finds:
• In terms of structure, Google so dominates its markets that rivals face barriers
to entry that preclude competitive market rivalry.
• In terms of conduct, Google has had an ongoing string of alleged instances that
are raising public concerns, including: the unauthorized collection of consumer
passwords, emails and other personal information (Wi-Spy); knowingly
advertising illegal online products; the bypassing of the iPhone privacy settings
to collect online information on consumer without their knowledge or
permission; as well as other issues.
1
Steve Pociask is president of the American Consumer Institute, and Joseph P. Fuhr, Jr. is professor of economics
at Widener University and a senior fellow for the American Consumer Institute. The Institute is a nonprofit 501c3
educational and research organization. For more information, visit www.theamericanconsumer.org.

3. 3
• In terms of performance, Google is very profitable – more so than its peers –
but these high profits fail to encourage market entry, as typically found in
competitive markets. This may be due to large artificial barriers to entry.
• Most troubling, however, are anecdotal and statistical data suggesting that
Google is “self-dealing” – manipulating its search results to punish competitors,
while favoring its own websites.
Based on our preliminary statistical analysis, this study finds the disparity in these
search results to be statistically significant and warrant a comprehensive analysis. To this last
point, while Yahoo and Bing cite each other and both cite Google in equal proportions, Google’s
search engine is twice as likely to cite itself and less likely to cite its competitors.
Since search is the first step used by online consumers – such as those making travel
plans, finding maps, buying products online and finding other information – if Google’s search
engine is not a “fair search” then it can influence what we read, where we shop and ultimately
what we pay online. If Google is manipulating its search rankings, consumers need to be told;
and if Google is collecting unauthorized personal consumer information to give itself an unfair
advantage, policymakers need to step in and protect consumer privacy and competition.
The risk of not stopping these breaches in market conduct is that it invites government
intervention and potentially onerous regulations of the industry, even though the problems
cited here are likely isolated to one company. Ironically, broad government regulations may do
more to preserve Google’s market dominance, because it can limit innovation and entry by
would-be competitors.
From our preliminary analysis, it is no coincidence that the current issues involving
Google’s market conduct and performance correspond with its high market concentration.
While further work is needed to confirm our findings, we believe there is enough evidence to
call policymakers into immediate action, including a comprehensive antitrust investigation.

4. 4
The competitive risks are high and, given the importance of the Internet, consumer privacy
protection is paramount.

5. 5
The Search for Market Dominance
Steve Pociask and Joseph P. Fuhr, Jr.
Introduction: Structure, Conduct and Performance
Google is best known for its free web search engine, but it also offers many other free
services to the public, including free reverse telephone service, free small business directory
assistance, free Internet browsers, free maps, free navigation services, free email services, free
websites, free translation, free online calendar and free games, as well as many other
“seemingly” free services. 2
To be clear, Google is not in the business of providing free services; its primary business
is to find other businesses willing to pay for its online advertising programs. For Google,
revenues are generated from the placement of ads on its search engine, as well as ad space on
its other websites, like YouTube, and partnering with other website owners through a revenue-
sharing arrangement. On Google’s search engine, advertisers identify and bid in auctions for
key words that determine the priority and placement of ads on Google’s search engine. As
consumers run online searches using various key words, they are exposed to advertisements.
In turn, advertisers pay Google based on the auction price and volume of advertisements. To
improve the matching of consumers and advertisements, Google collects online consumer
information into consumer profiles, including the browsing history of online users, search terms
and location information, thereby identifying attributes of those consumers most likely to click-
through to specific advertiser’s websites – a practice known as behavioral advertising. Because
Google’s free services work to aggregate online consumers, the volume of traffic attracts paying
advertisers, who pass this advertising cost along to consumers in the form of higher prices.
Financially, Google’s online advertising model has been very successful. Starting just
fourteen years ago, the company’s annual revenue reached $38 billion in 2011, mostly from
2
As will be shown later, while some services appear free, they may actually come at a hidden cost – such as the
loss of personal online information and/or higher prices.

6. 6
advertising sales, which accounted for $36.5 billion. 3 Comparing the fourth quarter of 2011 to
the fourth quarter of 2010, the company grew 25%, 4 and it appears to be growing at a pace of
nearly 20% for 2012, which would result in company revenues of $45 billion by the year’s end.
In 2011, nearly half of its ad revenue came from U.S. companies.5 In terms of profitability,
Google’s net income (as a percent of revenue) was much higher than most firms and nearly five
times higher than the average profits of the major Internet Service Providers (ISPs) – and it
accomplished this despite the economic slowdown. 6
However, Google’s advance has not been solely due to natural growth. Over its short-
lived years of operation, Google has executed over 100 acquisitions, providing it the means to
dominate the online search market, as well as helping it branch into new markets, including
online travel, navigation, smart phones, mapping and so on. 7 Some allege that Google’s size,
profitability, and ability to direct web traffic raises antitrust concerns.8 In fact, a number of
governmental probes have been initiated involving Google’s alleged market conduct, market
power, online privacy breaches and the use of consumer online information. These actions and
probes have included most state attorneys general, the U.S. Congress, various U.S. federal
agencies and international governments. 9
3
Annual Report, Google, 2011, p. 30.
4
Ibid, p. 38.
5
Ibid, p. 31.
6
Ibid, p. 29. Comparisons to ISP average included Comcast, Time Warner Cable, AT&T and Verizon for 2011.
7
One list totals 113 acquisitions by Google – see http://en.wikipedia.org/wiki/List_of_acquisitions_by_Google –
(downloaded on July 3, 2012).
8
For example, see Scott Cleland, “Google’s Earnings Spotlight Its Antitrust Liabilities, Forbes, Oct. 14, 2011,
http://www.forbes.com/sites/scottcleland/2011/10/14/googles-earnings-spotlight-its-antitrust-liabilities/;
9
“36 State Attorneys General Contact Google Chief about Privacy Policy,” MetroWest Daily News, Feb. 22,
2012,http://www.metrowestdailynews.com/news/x565044710/36-state-attorneys-general-contact-Google-chief-
about-privacy-policy; Michael Liedtke, “Google May Pay $500 Million after Ad Probe by the Justice Department,”
Associated Press, May 11, 2011, Huffington Post’s website at http://www.huffingtonpost.com/2011/05/11/google-
ad-justice-department-investigation_n_860429.html; Jeff Bliss, “Google Said to be Possible Target of Antitrust
Probe by FTC,” Bloomberg, April 5, 2011, http://www.bloomberg.com/news/2011-04-05/google-said-to-be-
possible-target-of-antitrust-probe-after-ita-acquisition.html; “FCC Fines Google $25,000 over Street View Probe,”
Associated Press, April 16, 2012, on KSL TV’s website at http://www.ksl.com/?sid=20014544&nid=1014&title=fcc-
fines-google-25000-over-street-view-probe&s_cid=queue-14; “Markey Calls for Congressional Hearing on Google
Street View Privacy Breach,” News Release from Congressman Markey’s website, April 17, 2012,
http://markey.house.gov/press-release/markey-calls-congressional-hearing-google-street-view-privacy-breach;
Edward Berridge, “Canada Launches Legal Probe into Google,” The Inquirer, June 2, 2010,
http://www.theinquirer.net/inquirer/news/1652043/canada-launches-legal-probe-google; and Aoife White,

7. 7
The best way to evaluate these concerns is to look at Google’s market structure,
conduct and performance to determine the extent to which Google exhibits market power and
poses an anticompetitive risk. As background, market structure (typically measured as market
concentration) was traditionally considered an indicator of potential market risks, but today it is
considered insufficient for determining whether market power exists or whether consumers are
harmed. Indeed, there are many examples of where a market with very few competitors –
including cases of duopolies – can produce competitive market outcomes.10 In fact, when
significant economies of scale and scope exist in an industry, a market with very few firms can
outperform an atomistic market, thereby producing lower prices, increasing quantity
demanded and maximizing consumer welfare.
As an example, concentration in various information technology industries seems to fit
this characterization, as exemplified by the large capital costs required by Internet services
providers, as well as the automation and scale necessary to mass produce laptop computers,
smart phones, computer chips and other manufactured technology devices. Therefore, while
market structure was once thought to determine market conduct and performance (notably
profitability), modern economic thought concludes that this causality is often reversed –
namely, that market conduct and performance are more likely determinants of market
structure. As such, when presented with strong evidence of anticompetitive conduct and
market power, the presence of high market concentration can be no coincidence.
With this in mind, the next sections will investigate the market structure, conduct and
performance of Google to determine whether it exhibits market power and poses
anticompetitive risks or whether Google is just another large firm, as typical of the information
technology sector.
“Google Given Weeks to Submit Remedies in EU Antitrust Probe,” Bloomberg, May 21, 2012,
http://www.bloomberg.com/news/2012-05-21/google-given-a-matter-of-weeks-to-submit-remedies-in-eu-
probe.html.
10
Blackstone, Erwin A., Darby, Larry F. and Fuhr, Joseph P. Jr., “The Case of Duopoly: Industry Structure is not a
Sufficient Basis for Imposing Regulation,” Regulation, Cato Institute, Winter 2011-12, pp. 12-17.

8. 8
Market Structure and “Tipping”
As mentioned earlier, dominant market share does not necessitate market power, and
some will aver that Google’s success is a reflection of consumer approval, not harm. However,
Google’s rise to size and market dominance was not all due to growth in demand, but
significant accretion – namely through acquisitions. For example, about one year after its IPO,
Google’s search engine market share reached 36.9%, and by June 2006 its share rose to
44.7%. 11 While several acquisitions helped Google expand its search advertising market in
2006, its acquisition of DoubleClick in 2007 and AdMob in 2009, provided the company
significant gains. Its purchase of YouTube in 2006, gave the Google additional traffic as well.
The result of these key acquisitions has helped Google’s develop a significant market presence
beyond those of its competitors.
Most troubling, however, are recent events suggesting that rivalry in the search engine
and search advertising markets has waned altogether. Not only are many of the early search
engine rivals gone, but most of the remaining competitors are using Google’s search capability
to some extent or through revenue-sharing deals. For example, for years now, AOL has been
using Google’s search engine and, consequently, Google’s advertising program. Similarly,
Ask.com downsized its staff several years ago and signed a five-year multi-billion dollar deal to
use Google’s advertising/sponsored links program. More recently, both AOL and Ask.com have
reaffirmed their dependence on Google. 12 As recently as last October, there are reports that
Google was looking to finance a deal for others to buyout Yahoo.13 Bing continues to sustain
billions of dollars in losses and single-digit market share worldwide. 14 Google has locked into
11
ComScore, IR, July 18, 2006
12
Nicholas Carlson, “AOL and Google Renew Search Deal Through 2015,” Business Insider, September 2010,
http://articles.businessinsider.com/2010-09-02/tech/29987558_1_exclusive-search-provider-google-mobile-
search; and Loren Baker, “Ask.com & Google Sign $3.5 Billion Search Advertising Deal,” Search Engine Journal,
November 6, 2007, http://www.searchenginejournal.com/askcom-google-sign-35-billion-search-advertising-
deal/5951/.
13
Paul Sakuma, “Google May Finance Deal for Yahoo Buyout: Report,” Associated Press, in the Chicago Sun-Times,
Oct. 22, 2011, http://www.suntimes.com/business/8362453-420/google-may-finance-deal-for-yahoo-report.html.
14
Bill Rigby and Andre Grenon, “Microsoft Redesigns Bing, Plays up Facebook Link,” Reuters, May 10, 2012,
http://www.reuters.com/article/2012/05/10/us-microsoft-bing-idUSBRE84918720120510; and “Microsoft Stung
by Web Woes,” Shira Ovide, Wall Street Journal, July 3, 2012, p. B1.

9. 9
exclusive deals with various providers, making it the default search engine on many online web
devices. By all indications, competitors are waning, rivals are using Google’s own services, and
not even Microsoft can make a profitable dent into the market. It appears that the market has
tipped to Google, which funnels much of the web’s traffic to and from its websites and partner
websites.
As a result of these activities, Google’s online search market share has substantially
increased. ComScore reports Google to have a 71.2% market share in the U.S. – 66.7% directly
through Google’s search engine, as well as indirectly through deals with Ask Network (3.0%)
and AOL (1.5%). 15 Google’s Global share is reportedly higher, accounting for 82% overall and
92% for mobile devices and tablets.16 Advertisers logically pay Google more for its services,
since their advertising dollars can reach the vast majority of the market, whereas Google’s
competitors have a single-digit reach worldwide. Why would advertisers want to duplicate
their ads on another search engine when they can get nearly full exposure via Google’s online
search engine and partners? For this reason, it appears that in the future it would be difficult
for smaller search engines to challenge Google’s dominance.
Since Google commands a large share of the market and advertisers are apt to be drawn
to Google’s advertising services, it can command higher prices than its competitors can. In fact,
some claim that Google’s ads earn nearly twice as much as other advertising programs, which
means that Google’s actual market share (based on revenue) is higher than commonly reported
(based on the number of searches). 17
15
“ComScore Releases May 2012 U.S. Search Engine Rankings,” ComScore Press Release, Reston, VA, June 13,
2012.
16
Global search engine market share is available on Stat Owl at www.statowl.com for April 2012 and
www.Marketshare.hitslink.com (including desktop and mobile devices) for May 2012. The data shown here were
downloaded on June 19, 2012.
17
For example, see “PPC Platform Competition and Google’s May Not Copy Restriction,” Benedelman, June 27,
2008, at http://www.benedelman.org/news/062708-1.html; and Benjamin G. Edelman, “Google-Yahoo Ad Deal is
Bad for Online Advertising,” Working Knowledge, Harvard Business School, August 12, 2008, at
http://hbswk.hbs.edu/cgi-bin/print?id=5995. If Google can charge twice as high as its competitors, then a 71%
domestic search share is actually 83% in terms of revenue share; and an 82% global market share is actually 90% in
terms of revenue share.

10. 10
What this means for consumers is simple – Internet searches are the most common
activity on the web. Google can influence what consumers see in terms of advertising and
search ranking, which leads consumers to “click ahead” in ways that benefit Google, its
advertisers and its sponsors. That dominance makes it harder for small firms to enter the
market and differentiate themselves to gain web traffic and succeed. In fact, even larger
industry players, such as ISPs, wireless providers and Microsoft are being pushed to the
sidelines. In the end, what consumers lose is choice, differentiation and innovation.
To summarize this problem is to understand “market tipping.” In network economics,
“market tipping” can occur when one very dominant firm achieves increased market share and
consumers perceive this increase as an increase in the value of the network. Said differently, an
increase in market share leads to “increasing returns to consumption” and bestows value upon
the dominant firm – a value that does not accrue to its rivals. Once the market tips, a dominant
firm has an advantage over its would-be competitors – an advantage that is difficult to
overcome. The advantage becomes a barrier to entry for would-be competitors. When the
market tips, the dominant firm will have market power, enabling it to raise prices and reap
excessive profits, much like any monopolist would. This poses an anticompetitive risk for
consumers.
Market Conduct and Performance
Google is highly profitable, more so than it peers. There have been numerous historical
comparisons between Google’s profits and those of other industries (including other tech
companies) which have found Google to be several times more profitable than other firms,
including Exxon, Merck, AT&T and Time Warner.18 In 2011, Google achieved gross profits of
65% (as a percent of revenue) and net income of 26%. 19 For that year, Google’s net income as a
18
For a few examples, see “A Cost/Benefit Look at Internet Regulations,” ConsumerGram, The American Consumer
Institute, Dec. 2010; “Financial Performance, Consumer Welfare and Two-Sided Internet Markets,”
ConsumerGram, The American Consumer Institute, June 2008.
19
Downloaded on July 17, 2012 from Yahoo Finance at www.yahoo.com.

11. 11
percent of revenue was nearly five times that of the largest four ISPs. 20 Google also
outperformed large blue chip companies in terms of profit margins, return on invested capital
and return on assets.21 The combination of sustained high profits and high concentration
suggest market power, particularly in light of a long list of issues concerning Google’s market
conduct.
A. Self-Dealing
Searching is the most important means for online consumers to find goods and services,
news and information on the web. If Google can manipulate its search rankings, it can direct
traffic to various websites and away from its competitors. In fact, some have suggested that
Google is intentionally altering its search rankings to undermine its competition. For instance,
ad competitor SearchKing claimed its website’s Google ranking dropped to zero,22 and search
competitor Kinderstart claimed its traffic dropped 70% when Google reset its ranking to zero.23
These examples suggest that Google may be manipulating its search rank to its advantage and
at the detriment of its competitors.
There may also be evidence that Google is manipulating the placement of its ads, not
just to disadvantage competitors, but to affect public policy. Google can direct traffic to policy
positions favorable to Google’s position. For example, Google banned U.S. Senator Susan
Collins’ ads that were intended to defend her against attacks by a group sharing mutual policy
interests with Google. 24 In addition, Google has admitted to taking certain search terms for
itself and giving them to others for political ends. For example, Multichannel News reported
that “Google’s top Washington Lobbyist disclosed that the company had configured its search
engine to return paid links that support Google’s position on net neutrality after the entry of
20
Ibid.
21
Data retrieved on June 11, 2012 from MSN Money at www.msn.com and covers the year 2011.
22
For example, Dahlia Lithwich, “Google-Opoly: The Game No One but Google Can Play,” Slate, Jan. 29, 2003,
http://www.slate.com/articles/news_and_politics/jurisprudence/2003/01/googleopoly_the_game_no_one_but_g
oogle_can_play.html.
23
“Website Sues over Google Blacklist,” Associated Press, March 17, 2006, available on MSN at
http://www.msnbc.msn.com/id/11883353/ns/technology_and_science-tech_and_gadgets/t/web-site-sues-over-
google-blacklist/.
24
Initially reported in the Washington Examiner on October 11, 2007.

12. 12
certain keywords.” 25 If Google were to take key words for its own use over auctioned words, it
can override any keyword and any advertisement or its placement. This also means that
Google can bid-up what it considers to be low auction prices, it can include the placement of
ads that favor its public policy positions over paying advertisers, and it can use its market
dominance to funnel traffic to its own websites. Google has the market power and incentive to
act in these ways. But, does it?
B. Foundem and NextTag
Several online e-commerce websites have alleged that Google changed their search
ranking, adversely affecting their web traffic and decreased their ability to compete in the
search market. Foundem’s traffic analysis was filed with the FCC, which suggested that Google
penalizes rivals and favors its own services. 26 At a Senate Judiciary antitrust hearing, a number
of online competitors have made similar allegations, including Yelp and NextTag. 27 Yelp’s CEO
has expressed concerns about Google’s dominance and called for Google to stop using Yelp’s
“review” content without its permission – to which Google threatened to drop Yelp from its
search indexing.28 TripAdvisor, as well as WebMD and City Search, reported a similar
unauthorized use of their content, and complained about Google’s practice of “promoting links
to Google’s own websites above those of non-Google sites in the results of its search engine.” 29
These examples, similar to early ones involving Search King and Kinderstart, raise
questions about Google’s bias in its search ranking and how it directs online web traffic. Given
Google’s size, the contention is that it controls consumer access to information – specifically
what consumers see and what they don’t see. By manipulating search rankings and ad
placement, Google has the power to affect the outcomes (successes) of new competitors; it can
25
“Google Web Search: Do No Evil,” Multichannel Newsday, June 12, 2006.
26
“Comments of Foundem,” In the Matter of Preserving the Open Internet Broadband Industry Practices, GN
Docket No. 09-191 and WC Docket No. 07-52, , filed with the Federal Communications Commission, Feb. 23, 2010,
http://apps.fcc.gov/ecfs/document/view?id=7020389727.
27
Scott Cleland, “Google’s ‘Bait & Switch’ Deception Exposed at Hearing,” Forbes, September 22, 2011.
28
Jason Kincaid, “Stoppleman: 75% of Yelp’s Traffic Comes from Google,” TechCrunch, Sept. 21, 2011, at
http://techcrunch.com/2011/09/21/stoppelman-75-of-yelps-traffic-comes-from-google/.
29
Amir Efrati, “TripAdvisor Says Google Won’t Stop Using Its Content,” Wall Street Journal, January 21, 2011, at
http://blogs.wsj.com/digits/2011/01/21/standoff-continues-between-google-other-sites/.

13. 13
make or break reputations; it can suppress adversarial viewpoints in favor of its own positions;
and it can do all of this while invading consumer privacy, leaving cookies that track consumer
online browsing and scanning consumer emails – often without consumer consent and
knowledge.
C. Evidence on Search Bias
Senators Lee and Kohl have called on the FTC to investigate Google’s alleged use of its
search tool to direct traffic away from its competitors to Google’s own websites and services. 30
If this search bias exists then it will increase Google’s profit, harm its competitors and limit
consumer choice – and it could explain, in part, why Google’s search market shares are so high.
To test these allegations, we selected 50 key technology words and ran searches using
the three top search engines – Google, Yahoo and Bing. 31 The results were tabulated to see
how often a search term would generate a result pointing to the website affiliated with a
particular search engine. The hypothesis is that Google searches would produce organic search
results that favor Google’s websites over its search competitors. Table 1 shows the tally for the
first (organic) search result for each key word, and the tally appears to support the
Congressional concern that Google favors its own websites over its competitors:
Table 1: Search Engine Provider’s Propensity to Cite Themselves 32
(Based on a Sample of 50 Key Words)
1st Organic Result Yahoo Search Bing Search Google Search
Yahoo websites 6 5 2
Bing websites 1 0 0
Google websites 11 13 25
30
Eric Savitz, “Sens. Kohl, Lee Seek FTC Antitrust Probe on Google,” Forbes, Dec. 19, 2011,
http://www.forbes.com/sites/ericsavitz/2011/12/19/sens-kohl-lee-seek-ftc-antitrust-probe-on-google/.
31
The key words are listed at the end of this paper in the appendix. The analysis included only organic search
results, excluding advertisements.
32
The count includes the results for affiliated websites. For example, Google count includes results for YouTube
and the Bing count includes results for MSN and Microsoft.

14. 14
Comparing the first search result for each of the fifty key words, the results show that
Yahoo tends to favor its own websites (6 times) to roughly the same degree as Bing favors
Yahoo’s websites (5 times), and Bing tends to favor its own websites (0 times) to roughly the
same degree as Yahoo favors Bing’s websites (1 time). Similarly, Yahoo finds Google as the first
search result in 11 of the 50 key words, while Bing finds Google 13 times. This suggests that
there is no obvious favoritism between Bing and Yahoo with respect to any of the three search
engine providers. However, Google searches find Bing and Yahoo less often, while finding its
own websites at more than twice the rate, suggesting that Google may be favoring its own
websites over its competitors.
To take this analysis a step further, a statistical test was employed. Using a similar
comparison, the sample was expanded to consider the top five search results for the fifty key
search words. The analysis appeared to produce similar results, with Google finding Google
websites 83 times, while finding its competitors only 19 times. Alternatively, the competitors
found Google 40.5 times (on average), while finding its own websites 26 times. Again, Google
search engine is twice as likely to bring up its websites within the first 5 search entries,
compared to its rivals, and it is less likely to find search results that click to its rivals. Using a
simple two-by-two contingency, the Chi-square value for this distribution is 8.6, indicating that
Google’s tendency to direct its search results to itself is statistically significant for the key words
selected. Based on this statistical test, we conclude that it is highly unlikely that the results
could have happened by pure chance (a 0.003 probability in fact), meaning that there appears
to be a bias in Google’s search engine that favors its own websites over its competitors. If true,
Google can use its size to drive traffic away from its smaller competitors. Since this analysis
only looked at 50 key words, further research and statistical testing is recommended to provide
evidence to substantiate these results.
D. Book Search
Google had attempted to get an exclusive court-approved deal to put books online,
including the free use of all orphaned works. This attempt began when Google illegally copied

15. 15
libraries of works and put them online. The deal was rejected by the judge hearing the case,
which would have allowed Google to dominate the book search market. The deal would also
have given Google a monopoly in book search advertising, permitted Google free use of
orphaned works, and made it impossible for would-be competitors to obtain better terms than
Google’s deal. 33 The bypassing of intellectual property rights could have consequences on
authors, who could find their works online with a search and accompanying advertisements.
Besides the loss of intellectual property and potentially lost revenue from online book sales,
authors might see their works alongside paid-for ads that they did not authorize nor endorse.
Google will profit directly from use of the copyrighted material while authors may not.
Germany has proposed legislation that search engines and news aggregators that are profiting
from other’s works should pay for them.34
E. Consumer Safety vs. Online Ads
There are also allegations that Google knowingly let its search engine direct consumers
to purchase illegally imported pharmaceuticals. Last year, Google entered into a non-
prosecution agreement with the Justice Department and paid $500 million for knowingly
providing advertising and selling “Google AdWords” to an online Canadian pharmacy that sold
and dispensed drugs to American’s without a prescription. 35 Also, it is illegal to import
pharmaceutical drugs into the United States. Thus, Google was promoting ads for illegal
activities. Another concern was that even though the drugs were being promoted by a
Canadian pharmacy there was no guarantee that the drugs were manufactured in Canada. The
Justice Department stated that “Canadian pharmacies that ship prescription drugs to U.S.
residents are not subject to Canadian regulatory authority, and many sell drugs obtained from
countries other than Canada which lack adequate pharmacy regulations.” 36 These drugs could
33
Steve Pociask, “Google’s One Million Books,” Forbes, Aug. 28, 2009,
http://www.forbes.com/2009/08/27/google-book-copyright-opinions-contributors-steve-pociask.html.
34
Cynthia Boris, “German News Producers Want Search Engines to Pay for Content,” Marketing Pilgrim, Mar. 2012,
http://www.marketingpilgrim.com/2012/03/germany-wants-search-engines-to-pay-for-content.html.
35
Dianne Bartz, “Google to Pay $500 Million over Online Drug Ads,” Reuters, Aug. 24, 2011,
http://www.reuters.com/article/2011/08/24/us-google-idUSTRE77N4A220110824.
36
Ibid.

16. 16
be inferior to those produced in the U.S. and may even be counterfeit, leading to inferior health
outcomes for many individuals.
F. Net Neutrality Policy
Google’s market success has also met with regulatory success. Google has successfully
led the way for the Federal Communications Commission to impose regulation to inhibit
Internet Service Providers (ISPs) from competing with it. The regulation, due to be
promulgated, will constrain ISPs from developing competing web content, as well as preventing
ISPs from price differentiation and prioritizing traffic on its own network. In addition, the rules
would also prevent a portion of Internet investment costs from being passed along to
companies like Google, who profit handsomely from the generation of Internet traffic on
networks owned by other companies. Many experts believe that these rules will raise
consumer prices and impede investment, costing American jobs and reducing consumer
welfare. 37
G. Wireless Auctions and Policy
During one wireless auction proceeding, when Google committed to bid for wireless
broadband spectrum, the FCC changed its spectrum bidding rules requiring winning bidders to
open their network to Google’s software and services. 38 Bidding only once, Google did not win
a single wireless license, but it got regulations that favored its wireless platform of products.
So, while the auction winners are now obliged to let Google’s devices ride for free, Google has
no obligation to invest in the network. Some experts believe that FCC deal cost the U.S.
37
For a collection of articles (filed with the FCC) on the adverse effects of these regulations on Consumers, see The
Consequences of Net Neutrality Regulations on Broadband Investment and Consumer Welfare, The American
Consumer Institute, Nov. 19, 2009, http://www.theamericanconsumer.org/wp-content/uploads/2009/11/final-
consequences-of-net-neutrality.pdf.
38
“Google Intends to Bid in Spectrum Auction if FCC Adopts Consumer Choice and Competition Requirements,”
News Release, Google, July 20, 2007, http://www.google.com/intl/en/press/pressrel/20070720_wireless.html.

17. 17
Treasury billions of dollars. 39 In any case, Google currently has the highest market share in the
wireless device market. 40
H. Travel Market
Sixty percent of consumers start their travel planning with an online search. 41 So when
Google acquired ITA software – the software running behind the flight searches for
CheapTickets, Kayak, Orbitz, Hotwire, United Airlines, US Airways and many other travel and
carrier-direct sales websites – there was great concern that Google might favor its travel search
results over popular travel websites. 42 The risk is that Google’s dominance over search will now
send many consumers to its own travel deals, reducing competition among online travel
companies and potentially raising consumer prices. In a settlement, the Department of Justice
(DOJ) imposed safeguards to give competitors access to ITA's software and create a firewall to
protect Google from using commercially sensitive information about its competitors. However,
if Google's search engine directs customers to its own site, then its site will have a competitive
advantage over its rivals.
Knowledge is Power
Microeconomic theory typically assumes perfect information, a market in which buyers
and sellers have the same information to influence their choices of production, investment and
consumption, thereby leading to efficient pricing of goods and services, as well as minimizing
costs for factors of production. However, when imperfect information is present, it is possible
that one-party (seller) is advantaged over another (buyer). Likewise, producers should have
similar information about the market in order to effectively compete.
39
Anna-Maria Kovacs, “The Merits of Open and Competitive Spectrum Actions,” FierceWireless, March 3, 2012,
http://www.fiercewireless.com/story/merits-open-and-competitive-spectrum-auctions/2012-03-13.
40
“ComScore Reports February 2012 U.S. Mobile Subscriber Market Share,” Release, ComScore, April 3, 2012,
http://www.comscore.com/Press_Events/Press_Releases/2012/4/comScore_Reports_February_2012_U.S._Mobil
e_Subscriber_Market_Share.
41
Roger Yu, “Google Moves into Online Travel Business,” USA Today, May 5, 2010,
http://www.usatoday.com/money/industries/travel/2010-05-05-googletravel05_ST_N.htm.
42
“Lee Calls for Antitrust Oversight Hearings on Google,” Press Release, March 11, 2011, includes a Letter from
Senator Lee to Senate Judiciary Chairman Kohl dated March 10, 2011. See,
http://www.lee.senate.gov/record.cfm?id=331843.

18. 18
Search advertising becomes more valuable when the search engine is able to match
online consumers with more relevant ads. For this reason, search companies tend to collect
and use consumer online browsing and search history to develop consumer profiles. This
behavioral advertising can be beneficial to consumers looking for information and shopping,
and it can be very profitable for advertisers seeking to sell their goods and services. When you
use a search service, your search is tied to your computer’s IP address, and that online history is
used, tracked and stored. Google’s various online services store your calendar events, SMS
messages, location and other information. The recent Google announcement that it will
combine consumer profiles across its nearly 60 services, giving it even better information over
its rivals. 43
When one company dominates search, they have clear advantage in developing a better
and more comprehensive profiles on individuals, whereas smaller search engines have fewer
potential observations and sometimes incomplete information. However, beyond Google’s
competitive size, its aggressive and controversial attempts to collect online consumer
information provide it with better market information than its competitors, thus presenting a
further disadvantage to rivals. This advantage allows Google to better target consumers with
its advertisements than its competitors, which allows Google to command higher prices and/or
take higher market share. This advantage means that information is power in the search
advertising market.
In economics, asymmetric information is sometimes considered a market failure. When
one company has better market information than its competitors, it could pose anticompetitive
risks if this information is collected through privacy breaches, online hacking, eavesdropping
and other unscrupulous activities. As the remaining portion of this section will show, Google
may have collected and used data in questionable ways, which may provide it a competitive
43
Google recently announced that it will combine its user information for roughly 60 of its services. See, Hayley
Tsukayama, “FAQ: Google’s New Privacy Policy,” Washington Post, January 24, 2011, at
http://www.washingtonpost.com/business/technology/faq-googles-new-privacy-
policy/2012/01/24/gIQArw8GOQ_story.html.

19. 19
edge over its rivals. Much of these data collection has been done without consumer knowledge
and consent.
A. Safari-Work Around
As Apple’s iPhone users opted to use Safari browser’s Do-Not-Track option, little did
they know that Google found a work-around in Safari’s software, collecting information without
Safari’s, Apple’s or consumers’ knowledge.44 In other words, consumers felt they had opted-
out of online tracking, only to later discover that Google figured out a way around Safari’s
protections. There is a pending Federal Trade Commission decision on this security breach,
including a potential fine to be levied on Google.
B. Street View/Wi-Spy
Dozens of state attorneys general announced that are investigating Google Street View,
suggesting that, among other things, Google collected private consumer information from
encrypted Wi-Fi networks. Affecting a number of countries, including the U.S., Google’s
unauthorized collection of information included downloading consumer passwords, emails,
medical records and other sensitive personal information. 45 European authorities have
particularly questioned Google’s privacy breaches, including Street View pictures in Denmark
and YouTube in Italy and other potential privacy problems. 46
C. Location Tracking
Completely undercutting Garmin and other navigation device companies, Google’s
Android phone gives away its navigation app for free, but at a hidden cost. In the process,
Google has collected mobile phone device identifiers (called media access control addresses or
44
Heather Perlberg and Brian Womack, “Google Violated Apple Users’ Privacy, Stanford Study Finds,” Bloomberg
News, February 21, 2012, available on Business Week’s website at http://www.businessweek.com/news/2012-02-
21/google-violated-apple-users-privacy-stanford-study-finds.html.
45
Josh Halliday, “Google Street View Broke Canada’s Privacy Law with Wi-Fi Capture,” Guardian, Oct. 20, 2010,
http://www.guardian.co.uk/technology/2010/oct/19/google-street-view-privacy-canada.
46
Bas van den Beld, “Avoiding Google’s European Privacy Gaffes,” Search Engine Land, May 30, 2010, at
http://searchengineland.com/avoiding-googles-european-privacy-gaffes-38887.

20. 20
MAC addressees) on devices like smart phones and Internet devices, thereby allowing them to
track your physical location as you travel shop, work and go home.
D. Doodle-for-Google
Google’s online art contest required children to provide their birth city, date and social
security numbers. 47 Google says that it did not intend to do anything inappropriate with the
information.
E. Gmail
By using free Gmail accounts, your messages are scanned so that Google can better
target you with web advertisements. However, it is contended that those consumers who are
not Gmail users, but merely respond to a Gmail message, are also getting their emails scanned
without their consent.48 These emails are collecting key words that go into your profile and are
used to target consumers with advertisements.
F. Google Buzz
This controversy stems from the fact that Google did not notify its “Gmail” users that
Google Buzz would use and potentially expose their email account information. Many users
complained when they were caught off guard. Jon Leibowitz, Chairman of the FTC had this to
say – “When companies make privacy pledges, they need to honor them. This is a tough
settlement that ensures that Google will honor its commitments to consumers and build strong
privacy protections into all of its operations." 49 The FTC’s ruling could subject Google to fines
of $16,000 per day per violation for future deceptive practices.
47
Chris Matyszczyk, “Why did Google Ask for Kid’s Social Security Numbers?” CNET, Feb 2, 2011,
http://news.cnet.com/8301-17852_3-20035164-71.html.
48
Abby Ellin, “Lawsuit: Gmail, Yahoo Email Invade Privacy, Even Non-Users’,” ABC News, July 2, 2012,
http://abcnews.go.com/Business/lawsuit-gmail-yahoo-invade-privacy-email-account/story?id=16680463.
49
Byron Acohido, “FTC Slaps Google with Audits over Buzz,” USA Today, March 31, 2011,
http://www.usatoday.com/tech/news/2011-03-30-google-ftc-settlement.htm.

21. 21
Companies have a responsibility to respect the privacy of consumers who use and trust
their products. Under this settlement, the FTC will now conduct biennial reviews of Google’s
practices to ensure they can no longer say one thing and do another.
G. Browser
Some allegations emerged that an early version of Chrome, Google’s web browser,
recorded all of the keystrokes of online consumers and stored them on its servers, much like
viruses referred to as key loggers. Concerning this allegation, Google responded that it would
stop storing this consumer information. 50
The list of examples above shows Google’s attempt to collect, track and store consumer
information, often without consumer knowledge. These examples go beyond tracking
consumer web browsing history. They include the collection of consumer information from
calendars and emails, as well as collecting consumer information by intercepting wireless
communications and hacking Safari’s Do-Not-Track option. If knowledge is power, consumer
online information is a key to achieving and maintaining online market dominance. The ability
of Google to gain better information through these questionable means creates imperfect
information in online markets and may constitute a market failure.
The government’s reaction to Google’s market conduct has, so far, been
inconsequential. Mergers are being approved, investigations are being dropped or settled, and
the FCC has leveled an insignificantly small $25,000 fine as a result of Google’s refusal to
cooperate with an investigation.51 It also does not hurt that Google has former staff in key
positions in the White House, Federal Trade Commission, Federal Communications Commission
and Department of Justice.
50
Gregg Keizer, “Google Bends Chrome Privacy Criticism,” PCWorld, Sept. 9, 2008, at
http://www.pcworld.com/businesscenter/article/150860/google_bends_to_chrome_privacy_criticism.html.
51
Andrea Chang, “FCC Fines Google $25,000 for Impeding Data-Collection Probe,” Los Angeles Times, April 15,
2012, http://articles.latimes.com/2012/apr/15/business/la-fi-tn-google-fine-20120415.

22. 22
These examples demonstrate that Google’s market structure is supported by its ongoing
market conduct, which together explains the high and sustained profitability of the business.
This analysis suggests anticompetitive risks that cannot be self-corrected.
Conclusions and Recommendations
Google has become one of the most successful companies in modern times, both in
terms of growth, market capitalization and enormous profits. That success, to a large degree,
reflects the fact that it dominates the search advertising market. Even several of Google’s
competitors now use Google’s own search engine. This means that Google now controls a basic
input of several of its competitors, which could raise antitrust concerns.
Google has a dominant market position and has often used questionable market
conduct to maintain that position. This suggests that the market may have well tipped to
Google, thereby creating barriers to entry and perpetuating a lack of competition.
Furthermore, with Google recording and archiving the personal browsing history of the vast
majority of online consumers (as well as collecting unauthorized personal information of
consumers), it is very difficult for any firm to enter the market and produce better targeted
online ads. In other words, market rivalry has all but ended and Google’s dominance will be
difficult to reverse.
What does this means for consumers? Evidence presented in this paper suggests that
Google may be manipulating its search results in ways that punish its competitors and favors its
own websites. In fact, if Google’s search algorithm favors its own websites as evidence
suggests, then Google is in a position to pick winners and losers in the marketplace --
influencing the books and news you read online, as well as the products you shop and prices
you pay for travel and online products. Google’s dominance means that it can shut out its
competition and funnel traffic to its websites and those of its advertisers.

23. 23
Based on this questionable conduct, there needs to be an extensive investigation into
these antitrust concerns, the risks that Google’s dominance poses to the industry and
consumers, and the extent to which remedies are needed to mitigate these anticompetitive
risks. The research presented in this paper is incomplete and limited in scope. However, while
more research is needed to verify and quantify these risks, the sheer number of incidences
should be a concern to policymakers.
The problems cited in this study appear to be isolated to one company and are not an
industry-wide problem. As such, broad government intervention and potentially onerous
regulations of the industry would seem excessive and could ironically preserve Google’s market
dominance and inhibit market entry. Therefore, it is important to focus this issue on Google,
the potential sources of these problems, and correct actions.

24. 24
APPENDIX:
50 Key Words Used to Compare Results from the Top Three Search Engines
academic papers movies
airline search music
apps music search
article search navigation
blog search net neutrality
blogs news
book search news feeds
bookmarks online documents
books optimize your website
browser patent search
calendar photo search
customized search photos
discussion groups presentations
documents product search
email searchable email
finance share photos
flight search spreadsheets
game search translate
instant messaging travel search
location video search
map search videos
maps voice
market voice mail
mobile search web search
movie search website trends